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Volkswagen: the Loss of Trust in Stakeholder Theory

VOLKSWAGEN: The Loss of Trust in Stakeholder Theory

William W. Vogelgesang

Stakeholder theory is sometimes hard to grasp; it’s at best counterintuitive and often unintelligible. What it says; however, becomes more apparent when incidents like the Volkswagen scandal come to light.

Balance is revered in all aspects of life and yet the myopic pursuit of profit at almost any cost is often tolerated in business. Cheating gets rationalized under the pressure of sales or profit objectives, but why?

The answer is complicated but has its origin in our inability to see the interconnectedness of all things. Lying to customers and regulators, as Volkswagen appears to have done, or unfairly lowering costs by underpaying labor, cheating suppliers or ignoring the environment lights a slow burning fire that will eventually become a much bigger problem– in Volkswagen’s case it will be in brand damage, lawsuits, and regulatory penalties. When we ignore the complexity of life and do what is easy, simple or expedient, we pay a price…eventually. And yet it is hard to balance the many competing interests especially when it seems so easy for businesses to argue for actions that attract buyers or reduce costs. It is the rare values-based leader who is conscious of the interconnections in life and how one decision sets in motion many unintended consequences. With that larger view, the only safe harbor is to try to do what is right by all parties.

How is it that attending to all stakeholders (customers, suppliers, employees, the environment, regulators)—with competing interests—yields better results? The answer is that we respect leaders who try to do the right thing even if we don’t agree, even if it is our interests that fall victim. We may not like it, but we live with it if we trust and believe the leader genuinely has our best interests in mind, understanding he or she has multiple interests to balance. A particular stakeholder cannot always be on the losing end of the bargain, but if the boss is trusted and truly trying to balance all stakeholder interests, all stakeholders win in the long run. What is unquestionable is that the conscious leader will have the respect, dedication and trust of its stakeholders. With trust in a leader, those competing stakeholders are likely to be more loyal, supportive, dedicated and productive. Like a well-trained crew with everyone pulling on the oars in perfect rythym, a conscious, values-based company will cut through the rough waters that might otherwise sink others whose employees, communities, customers, and suppliers just don’t care.

Volkswagen will undoubtedly find that the financial penalties assessed by governments and regulators will pale in comparison to the losses they incur from the damage to its brand and an affronted customer base. Today’s consumer is increasingly apt to reward those who play it straight and punish those that don’t. My mother was right again: cheaters never prosper.